Frequently Asked Questions
Q: Is there an intuitive reason for why the GLOB is superior?
A: Yes. Markets have an well-known property: Splitting up a trade into many
small ones over time (TWAPping) is a common strategy to lower price impact. A
lot of trades and transactions between different actors make this behavior
emerge effectively, but a single trade is very different in that it fills
immediately, which opens the door to extractive attacks (sandwich a buy order
with buy and sell, or remove phantom liquidity to match the order at a worse
price, etc). The GLOB realizes that the emergent behavior is the one that makes
most sense and enforces it at the most fundamental level. More precisely, it
enforces (roughly) Slippage = Size * Speed for any trade1.
Q: OK, this is rather abstract. Is there a simpler reason?
A: There are two: A speed cap and uniform price for everyone at any moment disables HFT extraction. And buyers and sellers can be matched directly over time for better prices without the need to have or pay for a third party that is not competitive.
Q: Is this new in DeFi?
A: Yes. It's also new in TradFi and would have positive impact there, too. In DeFi, it can be adopted more quickly.
Q: Is instant liquidity not something desirable? You're disabling it??
A: One might prefer markets with deeper liquidity which would give users the ability to hedge risks by quickly exiting large positions, for example. Markets aim to do so, but of course liquidity is always finite (else, prices would never change).
An actor who seeks to profit from this liquidity in the occasion of a global disruptive event would need to ensure that they are first (more precisely, in the first group among the liquidity available up to some price impact). One must realize they always profit at the cost of liquidity providers (and instead of anyone coming next). This adverse selection against LPs is a real problem, for example even for the constant arbitrages between dark pools and lit exchanges, or, as described above, to the point of disabling liquidity in prediction markets, where the importance of incoming news is amplified. Either the liquidity provider is able to delete their limit orders fast (meaning no instant liquidity after all where we wanted it most!) or the volume traded is essentially an arb of the price to its new external value at the cost of the LP and without further benefit. The common user and even professionals who are not first do not profit from this "instant liquidity" but have to carry its cost one way or another.
In a GLOB, one acknowledges that high urgency should come at a premium, and allows the price to change with (nearly) no volume cleared such that all trading volume is due to actual exchanges between participants with different opinions or interests - arguably the essence of what trading should really be about.2
It is worth clarifying that individuals can still make fast trades (although not with exactly zero time duration). Here, a doubling of the speed would match against double the position of a taker at their limit, or roughly double the price impact in between limits. In the case where their size is small compared to the market, trades can effectively be instant. Otherwise, it is up to the individual to decide between the tradeoff of speed and price impact. Furthermore, MMers are invited to compete for taking the order a posteriori, matching it with a similarly sped-up position on the other side: If the user has set a good limit, trading will barely commence until matching. Once matched, the order will be taken at no price worse than the limit. For a market order, setting a duration of at least a few blocks for bigger amounts leaves time for MMers to react such that most of the order could still be taken at a competitive price.
Footnotes
This formula holds approximately, with some proportionality constant, and in between limits. At limits, prices get "stuck" and the constant decreases as new positions on the opposite side are activated and positions at the same side are deactivated.
To make money in a prediction market while predicting the outcome, all that is needed is to consistently buy the side priced less than its true chances at the current moment (which is a time-dependent process). Changing side is equivalent to selling other positions. Exiting fast, however, is not required at all, and would only create an uneven playing field with the cost of destroying the market.